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Eskom price info 'will scare investors'

Jan de Lange | Thu, 10 Jun 2010 10:08

[miningmx.com] -- Eskom has to continue delivering electricity to BHP Billiton's massive Hillside aluminium smelter until 2028 and to Mozal, BHP Billiton’s second smelter in Mozambique, until 2026.

This is evident from the answering affidavits that Eskom and Billiton have lodged with the South Gauteng High Court in Johannesburg in response to Sake24’s application for the court to force Eskom to disclose the price formula at which BHP Billiton buys electricity from Eskom for operating its two smelters.

Sake24 argues that the smelters’ electricity is being provided at subsidised prices. In its response Eskom says that future investors would be scared off if the prices were revealed.

An Eskom report made public by DA member of parliament Pieter van Dalen in April indicates that in June last year Hillside was paying 15c/kWh and Mozal 13c, while Eskom’s other major clients were playing between 22c and 29c. The aluminium contracts had also not been subject to tariff increases.

In its court papers Eskom states that the contracts have become unsustainable.

Billiton argues that disclosing the prices will undermine its competitive position vis-à-vis other aluminium producers.

In the documents Pieter Bierman, legal manager at Billiton South Africa, says the contracts run to 2028 and 2026. This means that the contract for Hillside, which consumes 1 100MW, is locked up for 22 years. Mozal’s contract, which is for 845MW, is fixed for 25 years.

The two smelters together consume 5.68% of Eskom's generating capacity.

Sake24 believes it is in the public interest for the tariffs at which electricity is delivered to the smelters to be revealed in terms of the Promotion of Access to Information Act.

The tariffs are calculated according to a number of external factors, including the price of aluminium on the London Metal Exchange. Last year the tariffs resulted in a R9.5bn loss for Eskom.

Eskom and Billiton are currently renegotiating the terms of the contracts.

The Mozal negotiations have apparently been finalised, but those for Hillside are continuing.

In its court papers Eskom acknowledges that in 2008 the country would probably not have been subjected to power cuts and load-shedding had electricity not been delivered to the smelters.

- Sake24.com

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